Phillip Hoffman’s First Art Fund Shows Its Hand

It’s a good weekend for schadenfreude in the art world as Facebook has been exploding with sarcasm over Georgina Adams’s item releasing The Fine Art Fund’s returns as it winds down its first fund. Art funds have been the object of a great deal of ridicule and hype over the last decade. Hoffman’s fund has been seen as the most successful of an unproven lot. So it is not surprising that the single-digit returns have been met with mockery. That would be a mistake. Hoffman’s funds were sold to asset managers as way to offer diversification. The returns are not meant to match other asset classes. The allocations are for small portions of a portfolio.

That statement doesn’t advocate for the use of an art fund for diversification. There are other ways that asset managers can allocate to non-correlated assets. Hoffman himself has pointed out that the art market itself cannot accommodate all of the cash that would like to be allocated there anyway.

The Fine Art Fund is winding down its first fund (started in 2005/06) and, says director Philip Hoffman, “has returned all the initial capital to investors”. Over the next three years, it will sell off the last nine works in that fund. Returns are expected to be between 4 and 7 per cent net, says Hoffman, who explains that the result has been “dragged down by sluggish yields” on Old Master paintings. […]

But Hoffman is upbeat, and says the group is launching a new $100m fund next month. He maintains that “carefully managed, art has been shown to be a viable alternative asset”.

How can Hoffman be upbeat? We will try to talk to Hoffman more in the future but previous conversations with the founder reveal that the Fine Art Fund has evolved its business model substantially over the last decade. These first funds acted more like private equity investing alongside dealers in the old master trade. Since that time, The Fine Art Fund has continued to attract investors and developed new products to suit the needs of so-called Ultra High Net Worth Individuals and their families.